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Do You Have To Pay Taxes on Scholarships?

Pursuing higher education can be beneficial for giving you a leg up on your career. But with the rising cost of tuition fees and course requirements, finishing your degree can be a challenge if you’re not financially affluent.

If you’re not looking forward to the school debts you’ll have to pay off in the future, know that you always have the option of applying for a scholarship. But considering a scholarship can vastly lower the cost of your tuition, you’d also have to wonder if you’re supposed to pay taxes for the amount you’ll receive. To help you answer your question, this article will explore the tax implications of scholarships below.


What is a scholarship?

A scholarship is a type of financial aid awarded to students for the purpose of advancing their education. Depending on the scholarship you’re granted, some will provide a one-time check while others are renewable for every semester or school year.

If you’re interested in applying for a scholarship, you can look for charities, foundations, universities, businesses, the government, or individuals to see if they have programs that you can qualify for. The requirements for getting a scholarship will vary according to the institution that’s offering – where academic attainment, community participation, area of study, and financial need are a few of the most fundamental factors.

Scholarship vs fellowship grant

Although scholarships and fellowship grants both provide financial aid for students, the primary difference between the two is that a scholarship is aimed at undergraduate students that are pursuing a degree, while a grant is intended for graduate students that are seeking to do research or development for their master’s or doctoral program.

While you can apply for a scholarship from different institutions, a fellowship grant is often offered by colleges or universities, government agencies, or foundations. You can also qualify for a scholarship depending on its requirements, but a fellowship is only awarded to students that have excellent academic records. Once selected, they’ll receive a monthly stipend and a tuition waiver to help them complete their program.

Are scholarships taxable?

If you’re a lucky candidate for a scholarship, the amount you receive is usually tax-free as long as you use it under the following conditions:

  • You’re pursuing an associate or bachelor’s degree at an eligible institution that presents formal instruction, maintains permanent faculty and standard curriculum, and a steady amount of enrolled body of students
  • Scholarship funds are used to pay for qualified expenses, including tuition fees, books, supplies, and equipment required for your degree.

But in cases where you have leftover scholarship funds after paying your required expenses, you’ll need to declare the amount on your taxable income if you use it to pay accompanying expenses like room and board, utilities, travel, and optional educational equipment. 

Are scholarships income taxable?

If the type of scholarship you receive is one where you’re required to offer your services, like teaching or researching, you’ll need to indicate your scholarship amount as your earned income for the year. Unless you’re part of a work-learning service program, like the Armed Forces Health Professions Scholarship, National Health Service Corps Scholarship Program, or Financial Assistance Program, then you won’t need to declare the amount on your taxable gross income.

But for instances where the scholarship funds you receive exceed your qualified expenses, then you’ll need to report the amount as your taxable income. For example, if you were given $10,000 as your scholarship fund but it will only cost you $7,500 for your qualified expenses, then the remaining $2,500 will be considered as your taxable income.  

How do I report scholarships on my taxes?

To report taxable scholarships, the student themself must claim the amount on their own tax return even if they’re considered dependents on their parent’s tax return. 

If you’re a scholarship student, you’ll need to indicate the taxable amount on the “Wages, salaries, tips” line when filing your Form 1040 or Form 1040-SR. But if the amount wasn’t reported on Form W-2, you’ll need to enter “SCH” followed by the taxable amount in the space to the left of the “Wages, salaries, tips” line.

But if you’re a non-residential alien, you’ll need to file Form 1040-NR and report the taxable scholarship amount on the “Scholarship and fellowship grants” line.

Need help with your taxable scholarship?

If your course workload is keeping you busy, you don’t have to worry about the added stress of filing your taxable scholarship when you can have Lear & Pannepacker do that for you. They have a professional team of accountants that are equipped to handle your account so you won’t ever have to pay your taxes late ever again. To know more about their services, you can contact their team now and book a consultation.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.